A:

A V-shaped recovery depicts an economic situation where a severe downturn in the markets is met with an equally strong upturn in the markets. The V refers to the general shape a chart forms based on various data, such as unemployment, retail sales, industrial output, the shape of equity indexes or other metrics. Other recession recovery types often mentioned include the L-shape, U-shape, J-shape, W-shape and many others.

An L-shaped recession is a severe type of recession where there is be a prolonged period of flat or minimal improvements in the economy. An L-shaped recession could persist for years, essentially flatlining with years of stagnant growth. A common example of an L-shaped recession was the situation in Japan in the 1990s - an environment where loose lending standards led to a collapse in share prices and property prices. The economy started to rebound around 2003, and the time period leading up to 2003 is often referred to as the "lost decade" for Japan. This period was characterized by large bank failures, near 0% interest rates, rampant homelessness and increased government spending.

A U-shaped recovery is a more normalized recovery to a recession, where the economy gradually grows its way out of the recession. A W-shaped recovery generally starts out as a V-shaped recovery but another economic event may send the economy back down to previous lows which would be followed by another rebound to finish off the W-shape. The middle portion of the W-shape could also represent a significant bear market rally.

For more on recessions, take a look at our article Recession: What Does It Mean To Investors?

This question was answered by Joseph Nguyen.

RELATED FAQS
  1. Why does unemployment tend to rise during a recession?

    Learn what a recession is, some attributes of an economy in a recession, and why the unemployment rate tends to have a domino ... Read Answer >>
  2. What's the best investing strategy to have during a recession?

    Figure out how to take advantage of recessions, what assets to buy and which ones to avoid. Recessions are where some great ... Read Answer >>
  3. How do financial markets react to recessions?

    Learn more about the relationship between recessions and financial markets by identifying the fundamental characteristics ... Read Answer >>
  4. Is cyclical unemployment always due to recessions?

    Learn about the mechanisms that cause cyclical unemployment and find out about the role recessions and downturns play in ... Read Answer >>
  5. What is a growth recession?

    A growth recession is an instance in which an economy grows at such a slow pace that it creates net unemployment, meaning ... Read Answer >>
  6. What causes recessions?

    Learn more about possible explanations of recessions in the business cycle, including how individual firms react to changing ... Read Answer >>
Related Articles
  1. Investing

    Will China See an L-Shaped Recovery?

    According to a source quoted in the People’s Daily, China will experience an L-shaped recovery. Here's why.
  2. Insights

    Recession: What Does It Mean To Investors?

    Understanding the business cycle and your own investment style can help you cope with an economic decline.
  3. Insights

    Jobless Recovery: The New Normal Since 1990

    Just because the economy rebounds from a recession does not mean the unemployment rate will follow.
  4. Investing

    Tips For Recession-Proofing Your Portfolio

    Find out what to do when the sun sets on a burgeoning market.
  5. Insights

    6 Factors That Point to Global Recession in 2016

    We may be on the verge of another global recession.
  6. Insights

    Recession And Depression: They Aren't So Bad

    Financial downturns are part of the economic cycle and may have important long-term benefits.
  7. Insights

    A Review Of Past Recessions

    Here we look at the biggest economic declines in the U.S. since the Great Depression.
  8. Financial Advisor

    Why Advisors Shouldn't Fear a Recession

    Advisors who have clients who may fear a recession should take note that there is always some opportunity in a volatile market.
  9. Insights

    Industries That Thrive On Recession

    Find out where to turn when looking to invest in a tumultuous market.
  10. Insights

    What Causes A Recession?

    Many factors contribute to a recession, but the biggest one is inflation.
RELATED TERMS
  1. L-Shaped Recovery

    A type of economic recession and recovery that resembles an "L" ...
  2. V-Shaped Recovery

    A type of economic recession and recovery that resembles a "V" ...
  3. W-Shaped Recovery

    An economic cycle of recession and recovery that resembles a ...
  4. U-Shaped Recovery

    A type of economic recession and recovery that resembles a "U" ...
  5. Economic Recovery

    A period of increasing business activity signaling the end of ...
  6. Recession

    A significant decline in activity across the economy, lasting ...
Hot Definitions
  1. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  2. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  3. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  4. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  5. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  6. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
Trading Center